Thursday, October 01, 2009

"We believe it is essential to re-evaluate these existing intercarrier compensation regimes in light of increasing competition and new technologies, such as the Internet and Internet-based services, and commercial mobile radio services (CMRS)… The existing intercarrier compensation rules raise several pressing issues. First, and probably most important, are the opportunities for regulatory arbitrage created by the existing patchwork of intercarrier compensation rules."– FCC, 2001

"We agree with AT&T that the current carrier compensation scheme is badly flawed, and that the single best answer is for the FCC to take the necessary steps to fix it." – Richard Whitt, Google, September 25, 2009.

The tale behind these two quotes could make for a very long, sad story, or a shorter one. Because I have written much about this before [see here and here for starters], and because those who follow the FCC and its ways will understand the shorter story, I'm going to opt for that version here. And I fear the longer version, rightly, would give the uninitiated even more reason to be discouraged about the FCC's past performance and future prospects for implementing, within the confines of its congressional mandate, economically-sound, pro-competitive communications policies.

The story involves Google Voice, Google's "application" that allows consumers to make telephone calls to some but not all locations from its Web-based platform. Somewhat curiously, the service is "by invitation only." And, significantly, calls to certain locations are blocked so the Google Voice customer can't reach them. In a September 25 posting, Richard Whitt, Google's Washington Telecom and Media Counsel, explains the selective call blocking this way:

"This afternoon AT&T filed a letter with the Federal Communications Commission, alleging that Google Voice is preventing its users from making outbound calls to certain phone numbers with inflated access charges, and asking the Commission to intervene…Local telephone carriers charge long-distance companies for originating and terminating calls to and from their networks. Certain local carriers in rural areas charge AT&T and other long-distance companies especially high rates to connect calls to their networks. Sometimes these local carriers partner and share revenue with adult chat services, conference calling centers, party lines, and others that are able to attract lots of incoming phone calls to their networks….Google Voice's goal is to provide consumers with free or low-cost access to as many advanced communications features as possible. In order to do this, Google Voice does restrict certain outbound calls from our Web platform to these high-priced destinations."

So, Google justifies its call blocking to rural locations on the basis that it objects to paying the "inflated access charges" that AT&T and other carriers must pay under the existing access charge/intercarrier compensation regime. As the quote at the top of this post indicates, Google agrees the compensation regime is "badly flawed." It says, beneficently, the "single best answer" is for the FCC to fix it. But until the FCC does, no doubt Google is perfectly happy to go on discriminating against those callers who wish to call certain rural areas in which certain call centers, adult chat lines, and the like happen to be located.

In short, before it stops blocking calls, Google is waiting for Godot – in this instance, that would be the FCC – to fix an intercarrier compensation regime that has been broken since shortly before Genesis. Remember it was 2001 when the FCC said, in light of increasing competition and new technologies, that it was an essential, pressing matter to fix intercarrier compensation. (It has repeated this admonition over the years at regularly-scheduled intervals.) And recall that in 2001 the FCC explicitly bemoaned the opportunities for arbitrage presented by the existing system that rests upon outmoded techno-functional regulatory and jurisdictional distinctions that ought no longer to dictate policy in today's digital environment.

Now, you might think that I am going to go after Google for the discrimination that appears inherent in the operation of its telephone service, a discrimination apparently not tolerated by AT&T and other providers classified as "telecommunications" carriers rather than "information service" providers. After all, Google is one of the foremost proponents of net neutrality and a non-discrimination mandate, and the way it runs Google Voice appear to run counter to net neutrality principles. But going after Google for hypocrisy regarding its net neutrality posture would be part of the longer story, the one I am not telling here. In any event, I do not favor government-dictated net neutrality mandates, and I don't want to urge that Google be subject to them. I prefer avoiding going any further down the net neutrality regulation road than the FCC already has traveled.

What I want to urge the FCC to do is to devote its energies to really important priorities like fixing the "badly flawed" intercarrier compensation regime instead of initiating a new net neutrality proceeding. The FCC was correct in 2001 when it said fixing intercarrier compensation rules was an essential, pressing matter. Yet it is 2009, and despite taking many rounds of comments amounting to tens of thousands of pages, and several notices to "update" and "refresh" the record, the agency has done nothing.

The FCC's failure to act has impaired sustainable facilities-based competition, retarded new investment, and impeded the development of new technologies. Why has the FCC not acted? Mainly because the agency has lacked the political will – even though it is supposed to be an "expert" agency, not one driven by politics – to change a system in which rural carriers are allowed to charge what Rick Whitt rightly calls "inflated access charges." The FCC's inaction has been an institutional failure of the highest order.

Now, a decade on – truth be told, the FCC started the task in the '90s – the FCC apparently still is not making intercarrier compensation/universal service reform a top priority, even though all knowledgeable communications policymakers and scholars know it should be. Instead, the agency will devote major resources to developing, in an anticipatory rulemaking, new Internet regulations that almost certainly will be overly broad, even though, to date, only a few isolated "neutrality" incidents have occurred and they have been remedied quickly through voluntary action or the through the existing complaint regime.

I suggest the new FCC should readjust its priorities, committing itself to reforming outdated legacy regulations like the current intercarrier compensation/universal service regime that cause all consumers to bear enormous costs supporting uneconomic subsidies and arbitrage opportunities. Once the Commission has completed this task, there will be time enough, in light the then-existing marketplace realities, to determine whether new Internet regulation is warranted.

Despite Rick Whitt's acknowledgment that the "badly flawed" access charge compensation system needs fixing -- and that when it is fixed Google will then be pleased to play by the rules other service providers must play by -- we can be pretty sure that Google is not all that anxious to have the system fixed. It appears much more eager to see the FCC chasing neutrality bugaboos, betting – perhaps wrongly -- that when the dust settles it will remain just outside the edge of the new Internet regulation's reach.